MODVAT credit can be used across final products where no input-output co-relation is required under the credit rules.

Rule 3(3) of the Cenvat Credit Rules, 2002 allowed MODVAT credit to be used for payment of duty on any final product, and the credit was treated as indefeasible. No co-relation was required between the input on which credit arose and the final product on which duty was paid, so product-wise segregation of credit was inconsistent with the rule and the Board's circular. The assessee was therefore entitled to utilise credit across its final products, and the demand based on segregation was unsustainable.

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Issues: Whether MODVAT credit earned on inputs for one final product could be utilised for payment of duty on another final product manufactured by the same assessee.

Analysis: Rule 3(3) of the Cenvat Credit Rules, 2002 permitted utilisation of credit for payment of duty on any final product. The credit was treated as indefeasible, and there was no requirement of co-relation between the raw material on which credit arose and the final product on which duty was paid. The Board's circular also recognised that once credit was earned on a specified input, its use was not restricted to any particular final product. The Commissioner's approach of segregating credit product-wise was therefore inconsistent with the rule and the settled legal position.

Conclusion: The assessee was entitled to utilise MODVAT credit across its final products, and the demand based on product-wise segregation of credit was unsustainable.

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